A time for leniency

The island’s president has vetoed an unpopular bill to repay Britain and the Netherlands for bailing out depositors in a failed lender. The two countries may try to block Iceland’s IMF bailout and derail EU entry. But undermining Iceland’s recovery would be counterproductive.

Context News

President Olafur Grimsson of Iceland on Jan. 5 refused to sign legislation relating to the repayment of the UK and the Netherlands for their compensation of depositors in collapsed lender Landsbanki.

The president's decision will trigger a national vote on the bill, which faces huge public opposition.

Paul Myners, the UK Treasury minister, said a vote against the bill would effectively be saying that Iceland does not want to be part of the international financial system.

Iceland's parliament approved the bill on Dec. 30 by a majority of 33 votes to 30.

The bill would have amended legislation enacted in August that sets out the terms under which Iceland must repay $5.6 billion that the British and Dutch governments paid to local depositors of Icesave, Landsbanki's online savings bank. The new bill would have stipulated that Iceland's obligations would remain in place until full repayment had occurred.

Following the president's decision, Iceland's government stated that it viewed existing agreements with the UK and the Netherlands "as an important step towards normalizing the external financing of the country."